ENROLLED AGENT SPECIAL ENROLLMENT EXAM
PART 2 PREP |ACTUAL QUESTIONS AND VERIFIED
ANSWERS|BRAND NEW 2026-2027
UPDATE|GRADED A+
Question 1
What is the minimum number of years that a company must show a profit to qualify a
business as operating for profit?
(A) One out of three years
(B) Two out of five years
(C) Three out of five years
(D) Four out of six years
CORRECT ANSWER
(C) Three out of five years
The IRS has a limitation on the number of years a business can operate at a loss and still
use the
deductions on other income. This eliminates individuals operating businesses at a loss for
the
sole reason of the lower tax liability. The requirement is that the business must show a
profit on
at least three of the previous five years to be considered operating for profit.
Question 2
A company in its first year has a net operating loss of $1.9 million. In the second year, it
has a taxable income of $2.1 million. Determine the taxable income for the second year
incorporating the carryforward of the NOL.
1
,(A) $200,000
(B) $420,000
(C) $1.9 million
(D) $2.1 million
CORRECT ANSWER
(B) $420,000
A net operating loss can be carried forward up to a maximum of 80% of the taxable
income in the following year. 80% of $2.1 million = $1.68 million. Therefore, the total
taxable income is $2.1 million - $1.68 million = $420,000. This also leaves an additional
$220,000 to carry forward to the next year.
Question 3
Which of the following business entities requires the election of a board of directors?
(A) C corporation only
(B) C corporation and S Corporation
(C) C corporation, S Corporation, and LLC
(D) All business entities require a board of directors
CORRECT ANSWER
(B) C corporation and S Corporation
A board of directors which is elected for the oversight of the company is only required for
a corporation whether it be S or C.
Question 4
2
,All of the following are requirements for a company to be eligible for an S corporation
except:
(A) The company must have 100 shareholders or less
(B) The company may only have two classes of stock designated as A and B
(C) The company must be domestic
(D) The company must not be an ineligible company as designated by the IRS
CORRECT ANSWER
(B) The company may only have two classes of stock designated as A and B
There are certain limitations on a company's eligibility to be an S corporation. These
limits include:
Must be a domestic company
Must not be on the IRS list of ineligible types including insurance or financial institutions
Must have only one class of stock
Must be limited to 100 or fewer shareholders
Question 5
A partnership with three members decides to become a corporation after three years of
operation and elects to do so on Form 8832, Entity Classification Election. What is the
minimum amount of time that must pass to be eligible for a second change in entity
classification?
(A) 1 year
(B) 2 years
(C) 5 years
(D) 10 years
CORRECT ANSWER
3
, (C) 5 years
Once an election is made on Form 8832, Entity Classification Election, a new election
cannot be made until after a five-year waiting period.
Question 6
All of the following actions do not require the need for a new employer identification
number (EIN) for a sole proprietorship except:
(A) Addition of business locations in a different state
(B) Change in classification to a corporation
(C) Change in location of primary headquarters
(D) Change of business name
CORRECT ANSWER
(B) Change in classification to a corporation
Sole Proprietors are required to obtain a new EIN if any of the following statements are
true:
Subject to a bankruptcy proceeding.
The company chooses to incorporate.
The company takes in partners and operates as a partnership.
The company purchases or inherits an existing business that you operate as a sole
proprietorship.
Sole proprietors are not required to obtain a new EIN if any of the following statements
are
true:
The company changes the name of your business.
4
PART 2 PREP |ACTUAL QUESTIONS AND VERIFIED
ANSWERS|BRAND NEW 2026-2027
UPDATE|GRADED A+
Question 1
What is the minimum number of years that a company must show a profit to qualify a
business as operating for profit?
(A) One out of three years
(B) Two out of five years
(C) Three out of five years
(D) Four out of six years
CORRECT ANSWER
(C) Three out of five years
The IRS has a limitation on the number of years a business can operate at a loss and still
use the
deductions on other income. This eliminates individuals operating businesses at a loss for
the
sole reason of the lower tax liability. The requirement is that the business must show a
profit on
at least three of the previous five years to be considered operating for profit.
Question 2
A company in its first year has a net operating loss of $1.9 million. In the second year, it
has a taxable income of $2.1 million. Determine the taxable income for the second year
incorporating the carryforward of the NOL.
1
,(A) $200,000
(B) $420,000
(C) $1.9 million
(D) $2.1 million
CORRECT ANSWER
(B) $420,000
A net operating loss can be carried forward up to a maximum of 80% of the taxable
income in the following year. 80% of $2.1 million = $1.68 million. Therefore, the total
taxable income is $2.1 million - $1.68 million = $420,000. This also leaves an additional
$220,000 to carry forward to the next year.
Question 3
Which of the following business entities requires the election of a board of directors?
(A) C corporation only
(B) C corporation and S Corporation
(C) C corporation, S Corporation, and LLC
(D) All business entities require a board of directors
CORRECT ANSWER
(B) C corporation and S Corporation
A board of directors which is elected for the oversight of the company is only required for
a corporation whether it be S or C.
Question 4
2
,All of the following are requirements for a company to be eligible for an S corporation
except:
(A) The company must have 100 shareholders or less
(B) The company may only have two classes of stock designated as A and B
(C) The company must be domestic
(D) The company must not be an ineligible company as designated by the IRS
CORRECT ANSWER
(B) The company may only have two classes of stock designated as A and B
There are certain limitations on a company's eligibility to be an S corporation. These
limits include:
Must be a domestic company
Must not be on the IRS list of ineligible types including insurance or financial institutions
Must have only one class of stock
Must be limited to 100 or fewer shareholders
Question 5
A partnership with three members decides to become a corporation after three years of
operation and elects to do so on Form 8832, Entity Classification Election. What is the
minimum amount of time that must pass to be eligible for a second change in entity
classification?
(A) 1 year
(B) 2 years
(C) 5 years
(D) 10 years
CORRECT ANSWER
3
, (C) 5 years
Once an election is made on Form 8832, Entity Classification Election, a new election
cannot be made until after a five-year waiting period.
Question 6
All of the following actions do not require the need for a new employer identification
number (EIN) for a sole proprietorship except:
(A) Addition of business locations in a different state
(B) Change in classification to a corporation
(C) Change in location of primary headquarters
(D) Change of business name
CORRECT ANSWER
(B) Change in classification to a corporation
Sole Proprietors are required to obtain a new EIN if any of the following statements are
true:
Subject to a bankruptcy proceeding.
The company chooses to incorporate.
The company takes in partners and operates as a partnership.
The company purchases or inherits an existing business that you operate as a sole
proprietorship.
Sole proprietors are not required to obtain a new EIN if any of the following statements
are
true:
The company changes the name of your business.
4
